Samhällsbyggnadsbolaget i Norden (STO:SBB B) Seems To Be Using A Lot Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Samhällsbyggnadsbolaget i Norden AB (publ) (STO:SBB B) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Samhällsbyggnadsbolaget i Norden's Net Debt?

The chart below, which you can click on for greater detail, shows that Samhällsbyggnadsbolaget i Norden had kr53.3b in debt in June 2025; about the same as the year before. On the flip side, it has kr2.69b in cash leading to net debt of about kr50.6b.

How Strong Is Samhällsbyggnadsbolaget i Norden's Balance Sheet?

According to the last reported balance sheet, Samhällsbyggnadsbolaget i Norden had liabilities of kr9.37b due within 12 months, and liabilities of kr48.7b due beyond 12 months. Offsetting this, it had kr2.69b in cash and kr571.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr54.8b.

The deficiency here weighs heavily on the kr9.95b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Samhällsbyggnadsbolaget i Norden would probably need a major re-capitalization if its creditors were to demand repayment.

Check out our latest analysis for Samhällsbyggnadsbolaget i Norden

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Samhällsbyggnadsbolaget i Norden has a rather high debt to EBITDA ratio of 36.8 which suggests a meaningful debt load. However, its interest coverage of 3.6 is reasonably strong, which is a good sign. Even worse, Samhällsbyggnadsbolaget i Norden saw its EBIT tank 27% over the last 12 months. If earnings continue to follow that trajectory, paying off that debt load will be harder than convincing us to run a marathon in the rain. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Samhällsbyggnadsbolaget i Norden's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Samhällsbyggnadsbolaget i Norden produced sturdy free cash flow equating to 66% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Our View

On the face of it, Samhällsbyggnadsbolaget i Norden's EBIT growth rate left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But on the bright side, its conversion of EBIT to free cash flow is a good sign, and makes us more optimistic. Taking into account all the aforementioned factors, it looks like Samhällsbyggnadsbolaget i Norden has too much debt. While some investors love that sort of risky play, it's certainly not our cup of tea. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Samhällsbyggnadsbolaget i Norden , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.